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Bank regulation and monetary policy transmission: Evidence from the U.S. States liberalization

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  • Lakdawala, Aeimit
  • Minetti, Raoul
  • Schaffer, Matthew

Abstract

This paper studies the impact of geographic banking restrictions on monetary policy transmission. Exploiting the staggered state-level deregulation of U.S. banking from the late 1970s to the early 1990s, we find that interstate deregulation sharply increased the responsiveness of bank lending to monetary shocks, nearly doubling it. The effect occurred primarily for small and illiquid banks, pointing to a strengthening of the bank lending channel of monetary transmission. We find that this is especially due to a lower propensity of small banks affiliated with complex bank holding companies to insulate borrowers from monetary contractions.

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  • Lakdawala, Aeimit & Minetti, Raoul & Schaffer, Matthew, 2021. "Bank regulation and monetary policy transmission: Evidence from the U.S. States liberalization," European Economic Review, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:eecrev:v:138:y:2021:i:c:s0014292121001860
    DOI: 10.1016/j.euroecorev.2021.103859
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    4. Buch, Claudia M. & Eickmeier, Sandra & Prieto, Esteban, 2022. "Banking deregulation, macroeconomic dynamics and monetary policy," Journal of Financial Stability, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Bank regulation; Bank lending channel; Monetary policy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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